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Long/short funds are on track to post the worst monthly
so-called alpha performance since May 2022, which considers
gains in excess to benchmark indexes.
Losses were mainly on the short side of portfolios, but Goldman
saw "a meaningful deterioration in long side" too. A graphic
showed alpha returns were down roughly 1% for the month.
Goldman Sachs, as one of the biggest providers of lending and
trading services to investors, is able to see how large hedge
funds and asset managers move.
"This year has been challenging for anyone running significant
short positions, even if the fund is overall net long," said
Mark Spiegel, portfolio manager at hedge fund Stanphyl Capital.
"There's a huge disconnect between sluggish corporate earnings
accompanied by increasingly tight monetary policy versus stock
prices."
Long/short hedge funds were still up 0.49% in July through
Friday, driven by the overall stock market rally, which tends to
benefit their long bets, a different Goldman Sachs report showed
on Friday. The S&P 500 index rose roughly 2% in the same period.
Overall, different hedge fund strategies have been forced to
unwind their short positions to avoid further losses at a fast
pace in July amid a market rally, the bank said, adding there
had been few times in the past 10 years when the de-risking move
had been as high.
Goldman wrote hedge funds may be close to the finish line of
this trend, given the record levels reached. Going into August,
funds could re-engage in shorts again, it added.
Mario Unali, senior portfolio manager at Kairos Partners, which
invests in hedge funds, said hedge funds were unlikely to add
long positions. "I don't expect the hedge fund industry to start
chasing the market right now, at a time of seasonally low
volumes and increased gap risk."
(Reporting by Carolina Mandl in New YorkEditing by Alison
Williams and Matthew Lewis)
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